Thank You

Error.

Say what you will about one-percenters, there are fresh signs that they, too, are beginning to feel the pinch from a sputtering global economy.

The European debt crisis and a decline in the purchasing power of the euro, an accelerating slowdown in newly rich China, and uncertainty surrounding U.S. economic policies in an election year are all taking their toll on the luxury-retailing sector, an area that until recently seemed impervious to the stresses brought on by the housing bust, the credit crunch, and persistently high unemployment.

Just last week luxury retailer
Burberry GroupBRBY.LN -2.200902934537246%Burberry Group PLCU.K.: LondonGBP1733
-39-2.200902934537246%
/Date(1427837707000-0500)/
Volume (Delayed 15m)
:
1935478
P/E Ratio
0.24662852989663414Market Cap
7880280275.89113
Dividend Yield
1.1194460473167918% Rev. per Employee
247298More quote details and news »BRBY.LNinYour ValueYour ChangeShort position
(ticker: BRBY.U.K.), famous for its trademark tartan check featured in its clothing and accessories, became the latest company catering to the well-heeled to signal that times are changing for a sector that seemed to operate in a parallel universe the past few years. Burberry reported sales increased 11% in its first quarter, below expectations and well under the 34% growth set in the year-ago period.

Tiffany shares, which Barron's wrote about favorably earlier this year ("A Gem of an Investment," March 5) when they traded at $67.47 a share, are down 22% since then, to a recent $52.25, after a warning from the company in late May that slowing economic growth around the globe was hurting sales. Sales at the flagship Fifth Avenue store in Manhattan, which relies heavily on European tourists, dropped 4% in the first quarter. The jeweler lowered its full-year sales outlook to 7% to 8% growth from a previous expectation of 10% to 13% and cut its earnings-per-share guidance by 25 cents, to $3.70 to $3.80. Management said it expects all of the year's growth to come in the fourth quarter.

Tiffany shares may look tempting—they're trading at 12.4 times next year's estimates, versus their historical trough multiple of 14. But the short-term risks are too high for buying in now.

It's not just the rich who are pulling back from luxury stores; it's also the less affluent "aspirational" shoppers, says Marshal Cohen of research firm NPD Group. Everyone, it seems, is feeling a little poorer.

At the same time as Tiffany has lost its luster, Wal-Mart, the world's largest retailer, has seen its stock soar to new highs, despite the taint of a bribery and corruption scandal at its Mexico operations. In the two years since Barron's ran a bullish story on the company ("Load Up the Shopping Cart!", July 12, 2010), the stock has climbed more than 45% to around $73, with much of the advance in the past three months.

Wal-Mart has broadened its product offerings and returned to the everyday-low-price strategy that made it successful in the first place. The shares, which trade at 14.7 times next year's earnings and carry a dividend yield of 2.2%, could climb further as more investors warm to a company they overlooked for the past decade.